Difficult Economic Times Increase The Need For Private Student Loans

While the nation is still recovering from a massive financial catastrophe and credit crisis, families have watched their savings and home values shrivel away. The thought of sending their children to college has become a great source of despair - considering these are the two biggest contributors families use to fund their child's education.

Adding to the problem, college grants and scholarships are down, while tuition costs continues to rise, creating a large gap between federal student loan caps and the finances required to fund an education. The federal PLUS loan may help bridge this gap, but families are still looking to private funding so they can afford their child's education.

Over the last 15 years, the gap between what grants, scholarships and federal loans cover, and the actual cost of attendance has increased by more than $30,000 for public or state schools and $100,000 for private institutions.

Families who are looking for extra money need to do some research first. Private student loans have a higher interest rates but often have more incentives for the borrower. It is a good idea not to borrow more than you need. A student loan calculator can help families estimate their child's overall financial needs

Local community banks and credit unions are more willing to provide private student loans if you're already in good standing with them. Also, smaller lending outlets may offer a smaller interest rate, so it's a good idea to shop around

Federalizing College Loans Increase Cost and Raises Tuition

The student loan "take-over" legislation that was signed into law by President Obama on Tuesday could add $52 billion to the deficit between 2010 and 2020 when the cost of the market risk and administration expenses of the loans are taken into consideration.

Savings for taxpayers originating from the new student loan law are about $22 million lower under the “fair-value” figure than they are under the FCRA estimate. This leaves a discrepancy in figures. The savings are smaller on a fair-value basis because that measure, which takes into account the risks associated with those payments, assigns them a lower cost to the government and thus finds a smaller benefit from eliminating them,” said the CBO

http://www.cbo.gov/ftpdocs/108xx/doc10871/BudgetOutlook2010_Jan.cfm

So it's not difficult to see that education costs will not drop. Before signing the new law, President Obama acknowledged that colleges and universities would have to do their part in keeping tuition cost lower. However, when you decrease supply, price rises. When you increase demand, costs rise.

In federalizing student loans, President Obama has erased the incentive to shop for the best prices for higher education. This measure exponentially increases demand for more expensive schools, which in turn will raise tuition and college expenses. This means higher salaries for the professorial class that Obama and this administration really stands behind. The new legislation is more about helping college professors than students trying to fund their education.

Obama's legislation has cut banks out of the student loan process. Revenue for the loans has come either directly from the government or through private financial institutions, which have collected billions of dollars in federal subsidies to protect against default. When students default on government loans, the banks pass the loss on to the consumer.

New Student Loan Bill Increases Dependency On Federal Government

Amidst the student loan bill in Congress and rising tuition costs, many students and parents are not receiving valid information on what this all means to potential borrowers.

To many experts reviewing the bill, increasing the amount of government aid to students is just another part of Obama's overall nanny-state agenda.

The reforms, signed into law by President Obama last month, effectively makes the government the primary lender in federal student loans by cutting out banks as the middleman. The White House has said the changes, which take effect July 1, will save $68 billion over 11 years.

The loan industry estimates that up to 35,000 jobs might be lost by the transfer from FFEL to direct-loan. Members of Congress who represent states that employ a large portion of the industry workforce have opposed the measure for that reason.
http://www.time.com/time/politics/article/0,8599,1924128,00.html#ixzz0mFETEzb4

And of course The White House is not mentioning the downfall to the industry. The middle-man being cut out of Federal funding means loss of competition and loss of jobs. Ending private student lending also would disrupt a relationship many college borrowers prefer because private lenders provide their students with personal service, tailored loan packages and on-campus support.

Students also worry about the Government's ability to handle such a large loan volume. Students at the University of Central Oklahoma in Edmond, Oklahoma have reported that the Gov didn't disperse funds until 1 month after the tuition deadline. Amanda Rogers, a freshman at UCO was asked what she thought of the new student loan guidelines set by the U. S. Government "It seems a little silly to get excited about so-called student benefits when you cannot afford to eat."

Amanda, like many other students are turning to private aid. Interest rates may be a bit higher, but students seasoned by the financial aid process understand that private loans are more tailored to their needs. Some programs take a percentage of the money a student may spend on personal items and apply that the amount they owe. It's like free money.